Employers Eyeing Voluntary Benefits in Tough Economy

By Louise Esola

Feb. 23, 2009

While laying off workers and freezing salaries are common ways that businesses facing a tough economy are trying to control costs, they also are critically evaluating the voluntary benefits they offer, experts say.

Employers are spending more time examining voluntary benefits, such as retirement health care and long-term disability, to possibly shift some company-paid benefits to voluntary status or trim voluntary benefits overall, experts say. Meanwhile, some employees are abandoning voluntary offerings in order to keep more money in their paychecks, they say.

“This is one topic our clients have in the air right now,” says Lale Iskarpatyoti, a Philadelphia-based group health care practice leader for Watson Wyatt Worldwide. “Everyone—employers and employees—is focused on keeping costs low.”

“Clearly, all of our clients are saying their priorities have changed,” says James Blaney, New York-based chief growth officer with Willis Group Holdings Ltd.’s North American benefits practice. “There is less disposable income for everyone; employers are carving out their core benefits programs and rolling back offerings.”

Ray Brusca, vice president of benefits for Towson, Maryland-based Black & Decker Corp., says he has heard that many companies are shifting core benefits to voluntary status, a trim-the-budget trend the power tool and accessory maker is not likely to follow.

“We are being told [by experts] that as an employer in these times, we need to be supplying more [voluntary benefits],” Brusca says. “There are people proposing that as a way for employers to eliminate or scale back their ERISA-type benefits and offer them on a voluntary basis. That’s just not us.”

Since the economy plunged deeper into recession in the fourth quarter of 2008, research on the effects on company-paid and voluntary benefits has been limited.

In December, Watson Wyatt updated its “Effect of the Economic Crisis on HR Programs” survey of 117 U.S.-based companies. In addition to layoffs, hiring and salary freezes, and cuts to merit-based incentives, 10 percent of companies were planning eliminate or trim their retirement plan contributions.

Early last year, New York-based MetLife released its sixth annual “Study of Employee Benefits Trends” of 1,652 benefits decision makers, which found that 55 percent of companies offer voluntary benefits and see them as ways to retain employees and keep employer costs low.

Late last month, Chicago-based outplacement and consulting firm Challenger, Gray & Christmas found that 92 of 100 human resources executives surveyed said their companies had cut costs to cope with economic pressures, including some voluntary benefits.

Reducing costs appears to be the driving force for change in voluntary benefits, experts say.

Bruce Sletten, Fort Worth, Texas-based vice president for Aon Consulting Worldwide’s elective benefits practice, says voluntary benefits slowly are becoming a mainstay in employers’ benefit offerings, leaving employees paying more.

But particularly in the increasingly sluggish manufacturing and retail sectors, Sletten says employees are slow to embrace the voluntary plans.

Watson Wyatt’s Iskarpatyoti says enrollment in voluntary programs, such as legal plans and retirement programs, are at all-time lows as employers begin to offer scaled-back versions of core health care programs, such as consumer-driven plans, that typically take a bigger bite out of employees’ paychecks.

“[Employees] have to first find the money to pay for their health care and then continue to contribute to retirement,” she says. “These voluntary benefits are optional and have become less likely as a place [where] employees are spending their money.”

In turn, employers are looking at little-used voluntary benefits, such as those that provide legal guidance and some forms of disability, and cutting them from their benefits portfolio, experts say.

Although employers typically do not contribute to voluntary benefits, there are some administrative costs involved, Iskarpatyoti says.

“Employers are taking a long look at their menu of offerings, and where they are not seeing participation, they are cutting [voluntary benefits],” she says.

Eventually, employers could have difficulties meeting benefit providers’ minimum participation requirements, thus forcing them to halt some voluntary benefits even if an employer wishes to keep them, Sletten says.

The question remains: Are employees complaining? Not really, Blaney says.

“A lot of employers are preying on the fact that as long as employees have a job, nobody is going to complain as long as they still collect a paycheck,” he says. “Let’s face it: Workers are hearing a lot about reduction in workforce. We hear it every day. There is a general anxiety in the relationship between employers and their employees.”

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